UPDATE 3-Indian PM says no 'business as usual' with Pakistan

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Last Updated: Wed, Jan 16, 2013 18:41 hrs

(Adds report of machinegun fire)

By Satarupa Bhattacharjya

NEW DELHI, Jan 15 (Reuters) - Indian Prime Minister Manmohan
Singh said on Tuesday there could be no "business as usual" with
Pakistan after a clash last week along the line dividing the
arch-rivals in Kashmir in which two Indian soldiers were killed
and their bodies mutilated.

Speaking to reporters at a ceremony to mark India's Army
Day, Singh said that the killings on Jan. 8 on the Line of
Control, in which one of the soldiers was beheaded, were a
"barbaric act".

His remarks came after Indian army chief General Bikram
Singh said his country reserved the right to retaliate and he
had instructed his ground commanders to respond to any
provocation aggressively.

Adding to the tensions, troops from both sides exchanged
machinegun fire across the line for more than two hours on
Tuesday night, Indian army intelligence officials told Reuters.

No one was injured and no property was damaged during the
latest shooting in Poonch district, they added.

Despite each side blaming the other for the worst outbreak
of violence in the area since a ceasefire was agreed nine years
ago, analysts said a breakdown in ties between the nuclear-armed
neighbours was highly unlikely.

Singh has been pushing for a rapprochement with Pakistan,
despite opposition not only from the main rival political party
but also from within his ruling coalition.

Yet Indian Foreign Minister Salman Khurshid said ties could
not remain unaffected by the flare-up on the border.

"Such actions by the Pakistan army which are in
contravention of all norms of international conduct not only
constitute a grave provocation but lead us to draw appropriate
conclusions about Pakistan's seriousness in pursuing
normalisation of relations with India," he added.

"BRAZEN DENIAL"

Each army has lost two soldiers in fighting along parts of
the 740-km (460-mile) de facto border this month.

The decapitation of one of the Indian soldiers provoked
outrage in the country and demands of retribution including from
his family which wanted the severed head of the soldier back.

Pakistan has dismissed the Indian allegations as propaganda
and instead accused India of violating the ceasefire in Kashmir,
which has been the cause of two of three wars between the two
neighbours.

But Khurshid said New Delhi had asked Pakistan's government
to conduct an investigation into the attack and ensure that the
grave act by its army was not repeated.

"It should not be felt that the brazen denial and a lack of
proper response from the government of Pakistan to our repeated
demarches (official statements) on this incident will be ignored
and that bilateral relations could be unaffected or that there
will be 'business as usual'," he said in a statement.

The two countries have been trying to revive a peace process
that went into deep freeze after the Mumbai attacks in November
2008 by a Pakistan-based militant group.

Pakistan remained committed to the peace process, a foreign
ministry spokesman said in a statement on Tuesday.

"Pakistan attaches great importance to the ongoing peace
process with India, and is committed to resolve the issue of LOC
violations under the agreed mechanism," the spokesman said.

He added that Pakistan's offer to hold an investigation by
the United Nations Military Observer's Group for India and
Pakistan remained on the table.

India rejects any involvement of the U.N. group, considering
the whole of Kashmir as an integral part of the country.